Lesson-3-1.docx

**Objective of PAS 1** - This Standard prescribes the basis for presentation of general-purpose financial statements to ensure comparability both with the entity\'s financial statements of previous periods and with the financial statements of other entities. - It sets out overall r...

**Objective of PAS 1** - This Standard prescribes the basis for presentation of general-purpose financial statements to ensure comparability both with the entity\'s financial statements of previous periods and with the financial statements of other entities. - It sets out overall requirements for the presentation of financial statements, guidelines for their structure and minimum requirements for their content. **Scope** - An entity shall apply PAS 1 in preparing and presenting general purpose financial statements in accordance with Philippine Financial Reporting Standards (PFRSs). **Financial Statements** - are the means by which information accumulated and processed in financial accounting is communicated to the users; structured financial representation of the financial position and financial performance of an entity **"General purpose" financial statements** - are statements that have been prepared for use by those who are not in a position to require an entity to prepare reports tailored to their particular needs. **Objectives** - The objective of general-purpose financial statements is to provide information about the financial position, financial performance, and cash flows of an entity that is useful to a wide range of users in making economic decisions. To meet that objective, financial statements provide information about an entity\'s: - Assets - Liabilities - Equity - Income and expenses, including gains and losses - Other changes in equity - Cash flows **Complete set of Financial Statements** - An entity shall present with **[EQUAL PROMINENCE]** all of the financial statements. A complete set of financial statements comprises of: 1. a statement of financial position as at the end of the period 2. a statement of profit or loss and other comprehensive income for the period 3. a statement of changes in equity for the period 4. a statement of cash flows for the period 5. notes, comprising significant accounting policies and other explanatory information - comparative information in respect of the preceding period 6. a statement of financial position as at the beginning of the preceding period when an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statements, or when it reclassifies items in its financial statements - **General Features of Financial Statements** 1. [Fair Representation and Compliance with IFRSs] - The financial statements must \"present fairly\" the financial position, financial performance and cash flows of an entity. - PAS 1 requires that an entity whose financial statements comply with PFRSs make an explicit and unreserved statement of such compliance in the notes. Inappropriate accounting policies are not rectified either by disclosure of the accounting policies used or by notes or explanatory material. - The application of PFRSs, with additional disclosure, when necessary, is presumed to result in financial statements that achieve a fair presentation. - PAS 1 acknowledges that, in extremely rare circumstances, management may conclude that compliance with an PFRS requirement would be so misleading that it would conflict with the objective of financial statements set out in the Framework. In such a case, the entity is required to depart from the PFRS requirement, with detailed disclosure of the nature, reasons, and impact of the departure. 2. [Going Concern] - An entity preparing PFRS financial statements is presumed to be a going concern. - If management has significant concerns about the entity\'s ability to continue as a going concern, the uncertainties must be disclosed. - If management concludes that the entity is not a going concern, the financial statements should not be prepared on a going concern basis, in which case PAS 1 requires a series of disclosures. 3. [Accrual Basis of Accounting] - PAS 1 requires that an entity prepare its financial statements, except for cash flow information, using the accrual basis of accounting. 4. [Consistency of Presentation] - The presentation and classification of items in the financial statements shall be retained from one period to the next unless a change is justified either by a change in circumstances or a requirement of a new PFRS. 5. [Materiality and Aggregation] - Each material class of similar items must be presented separately in the financial statements. - Dissimilar items may be aggregated only if they are individually immaterial. 6. [Offsetting] - Assets and liabilities, and income and expenses, may not be offset unless required or permitted by a Standard or an Interpretation. 7. [Comparative Information] - PAS 1 requires that comparative information shall be disclosed in respect of the previous period for all amounts reported in the financial statements, both face of financial statements and notes, unless another Standard requires otherwise. If comparative amounts are changed or reclassified, various disclosures are required. 8. [Frequency of Reporting] - There is a presumption that financial statements will be prepared at least annually. If the annual reporting period changes and financial statements are prepared for a different period, the enterprise must disclose the reason for the change and a warning about problems of comparability. - **Structure and Content: Identification of the financial statements** - An entity shall clearly identify the financial statements and distinguish them from other information in the same published document. - An entity shall display the following information prominently: - the name of the reporting entity or other means of identification, and any change in that information from the end of the preceding reporting period - whether the financial statements are of an individual entity or at group of entities - the date of the end of the reporting period or the period covered by the set of financial statements or notes - the presentation currency, as defined in IAS 21 - the level of rounding used in presenting amounts in the financial statements - **Statement of Financial Position** - Formal statement showing the three elements comprising financial position, namely assets, liabilities, and equity. - An entity shall present current and non-current assets, and current and non-current liabilities, as separate classifications in its statement of financial position. - When that exception applies, an entity shall present all assets and liabilities in order of liquidity. - Whichever method of presentation is adopted, an entity shall disclose the amount expected to be recovered or settled after more than twelve months for each asset and liability line item that combines amounts expected to be recovered or settled: - no more than twelve months after the reporting period, and - more than twelve months after the reporting period - An entity shall classify an asset as **[CURRENT]** when: - it expects to realize the asset, or intends to sell or consume it, in its normal operating cycle - it holds the asset primarily for the purpose of trading - it expects to realize the asset within twelve months after the reporting period, or - the asset is cash or a cash equivalent (as defined in IAS 7) unless the asset is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period - An entity shall classify all other assets as **[NON-CURRENT]**. - An entity shall classify a liability as current when: - it expects to settle the liability in its normal operating cycle - it holds the liability primarily for the purpose of trading - the liability is due to be settled within twelve months after the reporting period, or - it does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period - If an entity expects, and has the discretion, to refinance or roll over an obligation for at least twelve months after the reporting period under an existing loan facility, it classifies the obligation as non-current, even if it would otherwise be due within a shorter period. - When refinancing or rolling over the obligation is not at the discretion of the entity (for example, there is no arrangement for refinancing), the entity does not consider the potential to refinance the obligation and classifies the obligation as current. - When an entity breaches a provision of a long-term loan arrangement on or before the end of the reporting period with the effect that the liability becomes payable on demand, it classifies the liability as current, even if the lender agreed, after the reporting period and before the authorization of the financial statements for issue, not to demand payment as a consequence of the breach. - However, an entity classifies the liability as non-current if the lender agreed by the end of the reporting period to provide a period of grace ending at least twelve months after the reporting period, within which the entity can rectify the breach and during which the lender cannot demand immediate repayment. [Equity] - Equity is the residual interest in the assets of the entity after deducting all the liabilities. - The account name in reporting the equity of an entity depends on the form of the business organization: Sole proprietorship Owner\'s equity --------------------- ----------------------------------------------- Partnership Partner\'s equity Corporation Stockholders' equity or shareholders\' equity - Shareholders\' equity includes share capital, share premiums, treasury shares, retained earnings, OCI items. **[Formats of SFP]** 1. Account form, which looks like a T account, where assets are listed on the left side of the statement while liabilities and equity are listed on the right side. 2. Report form presents the assets, liabilities, and equity in a continuous format. Liabilities are presented after total assets and equity accounts are listed after the liabilities section. 3. Financial position form emphasizes working capital of the firm. In this format, net assets are equal to the equity.  [PAS 1, paragraph 54, balance sheet line items:] 1. Cash and cash equivalents 2. Financial assets 3. Trade and other receivables 4. Inventories 5. Property, plant and equipment 6. Investment in associates accounted for by the equity method 7. Intangible assets 8. Investment property 9. Biological asset 10. Total assets classified as held for sale and assets included in disposal group classified as held for sale 11. Trade and other payables 12. Current tax liabilities 13. Deferred tax asset and deferred tax liability 14. Provisions 15. Financial liabilities 16. Liabilities included in disposal group classified as held for sale 17. Noncontrolling assets 18. Share capital and reserves [PAS 1, paragraph 60, provides that an entity shall present current and noncurrent assets, liabilities on the face of the statement of financial position.] - **Statement of Comprehensive Income** - It is the overall income statement that consolidates standard profit or loss statement, which gives details about the repetitive operations of the company, and other comprehensive income. - Comprehensive income is the change of equity during a period other than changes resulting from transactions with owners in their capacity as such. Comprehensive income includes profit or loss and other comprehensive income. - Profit and Loss is the total income less expenses excluding the components of other comprehensive income. - Other comprehensive income comprises items of income and expenses including reclassification adjustments that are not included in Profit and Loss as required by a standard or interpretation. - An entity shall present the following items, in addition to the profit or loss and other comprehensive income sections, as allocation of profit or loss and other comprehensive income for the period: - profit or loss and comprehensive income for the period attributable to: - non-controlling interests - owners of the parent [Profit or Loss] - revenue, presenting separately interest revenue calculated using the effective interest method and insurance revenue - gains and losses arising from the derecognition of financial assets measured at amortized cost - insurance service expenses from contracts issued within the scope of IFRS 17 - income or expenses from reinsurance contracts held - finance costs - impairment losses (including reversals of impairment losses or impairment gains) determined in accordance with Section 5.5 of IFRS - insurance finance income or expenses from contracts issued within the scope of IFRS 17 - finance income or expenses from reinsurance contracts held - share of the profit or loss of associates and joint ventures accounted - if a financial asset is reclassified out of the amortized cost measurement category so that it is measured at fair value through profit or loss, any gain or loss arising from a difference between the previous amortized cost of the financial asset and its fair value at the reclassification date (as defined in IFRS 9) - if a financial asset is reclassified out of the fair value through other comprehensive income measurement category so that it is measured at fair value through profit or loss, any cumulative gain or loss previously recognized in other comprehensive income that is reclassified to profit or loss - tax expense - a single amount for the total of discontinued operations [Other Comprehensive Income] - OCI includes the following Components of OCI that will be reclassified subsequently to profit, or loss include the following: - Unrealized gain or loss on debt investments measured at fair value through other comprehensive income - Unrealized gain or loss from derivative contracts designated as cash flow hedge - Translation gains and losses of foreign operations - Components of OCI that will be reclassified subsequently to retained earnings include the following: - Unrealized gain or loss on equity investments measured at fair value through other comprehensive income - Change in Revaluation Surplus - Remeasurement gains and losses for defined benefit plans IAS 19 - Change in fair value arising from credit risk for financial liabilities measured at fair value through profit or loss - An entity shall present an recognized in profit or loss using a classification based on either their nature or their function within the entity, whichever provides information that is reliable and more relevant. 1. **Nature of Expense Method** - expenses are aggregated in the income statement according to their nature and are not reallocated among various functions within the entity. 2. **Function of Expense or Cost of Sales Method -** classifies expenses according to their function as part of cost of sales or, for example, the cost of distribution or administrative activities.  - **Statement of Changes in Equity** - Shows the movements in the elements or components of the shareholders equity. - An entity shall present a statement of changes in equity showing in the statement: - Total comprehensive income for the period, showing separately the total amounts attributable to owners of the parent and to non-controlling interests - For each component of equity, the effects of retrospective application or retrospective restatement recognized in accordance with PAS 8 - For each component of equity, a reconciliation between the carrying amount at the beginning and the end of the period, separately (as a minimum) disclosing changes resulting from: - profit or loss; - other comprehensive income; and - transactions with owners in their capacity as owners, showing separately contributions by and distributions to owners and changes in ownership interests in subsidiaries that do not result in a loss of control Image result for statement of owner\'s equity peso - **Statement of Cash Flows** - Cash flow information provides users of financial statements with a basis to assess the ability of the entity to generate cash and cash equivalents and the needs of the entity to utilize those cash flow. - IAS 7 sets out requirements for the presentation and disclosure of cash flow information.  - **Notes to the Financial Statements** - The notes shall: - present information about the basis of preparation of the financial statements and the specific accounting policies used - disclose the information required by IFRSs that is not presented elsewhere in the financial statements - provide information that is not presented elsewhere in the financial statements but is relevant to an understanding of any of them. - An entity shall, as far as practicable, present notes in a systematic manner. - An entity shall cross-reference each item in the statements of financial position and in the statement(s) of profit or loss and other comprehensive income, and in the statements of changes in equity and of cash flows to any related information in the notes. - An entity shall disclose its significant accounting policies comprising: - the measurement basis (or bases) used in preparing the financial statements - the other accounting policies used that are relevant to an understanding of the financial statements - An entity shall disclose information about the assumptions it makes about the future, and other major sources of estimation uncertainty at the end of the reporting period, that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year. - In respect of those assets and liabilities, the notes shall include details of: - their nature - their carrying amount as at the end of the reporting period - Examples of the types of disclosures an entity makes are: - the nature of the assumption or other estimation uncertainty - the sensitivity of carrying amounts to the methods, assumptions and estimates underlying their calculation, including the reasons for the sensitivity - the expected resolution of an uncertainty and the range of reasonably possible outcomes within the next financial year in respect of the carrying amounts of the assets and liabilities affected - an explanation of changes made to past assumptions concerning those assets and liabilities, if the uncertainty remains unresolved \*The Standard does not require an entity to disclose budget information or forecasts in making the disclosures.